MORGAN STANLEY WARNS: Chinese stock prices could crash another 30%

The red-hot market is now down 19% from its high, which it set on
June 12.

Some folks may see this as a buying opportunity, but not the
analysts at Morgan Stanley.

"[T]his is probably not a dip to buy," Morgan Stanley's Jonathan
Garner said. "In fact, we think the balance of probabilities is
that the top for the cycle of Shanghai, Shenzhen and Chinext has
now taken place."

Garner warns that the Shanghai Composite, which closed at on
Friday, could have much farther to fall.

"We set a new 12-month Target Price range for Shanghai Composite
of 3,250-4,600," he said. "This range is ~30% to -2% below the
current level of the index."

Garner's not kidding when he warns of the 30% downside. While a
crashing stock market could be bad enough to trigger some social
instability, it's not without precedent to see regulators allow
the market to just collapse.

"For us, ultimately this argument against a sustained bear phase
for China A shares over the next 12 months sounds almost as
dubious as what we were hearing in late 2007," Garner said.
"Then, it was frequently argued that the Chinese authorities
would not let the A share equity markets decline before the major
international prestige event of the Beijing Olympics in August
2008. The Shanghai Composite fell by 57% from the peak in October
2007 to the opening days of the Beijing Olympics."